The Importance of Homeowners Insurance

By Bethany Harris on March 23rd, 2010

What would you do if your home was severely damaged in a storm, your house needed extensive repairs, and most of your furniture and belongings were ruined? Without a home insurance policy, the cost to recover from such damage could be financially devastating. When you invest in homeowners insurance, you are protecting your home, and yourself, against financial disaster.

Homeowners insurance provides the following types of financial protection:

Coverage for damage to your home and its contents

Liability protection

Additional living expenses should your home become uninhabitable due to a covered disaster

Financial Help When Your Home Is Damaged

Should your home be damaged or destroyed by a disaster, or peril, which falls within your policy limits, your homeowners policy covers the cost to repair or rebuild your home. In order to be financially protected against such a disaster, you should carry enough home insurance to rebuild your home.

In addition to your home, most separate structures are also covered by your home insurance. This could include a detached garage or tool shed.

Liability Protection

The liability protection portion of your home insurance policy financially shields you against lawsuits for bodily injury or property damage that you, someone in your family, or your pet may cause to others.

If such an event results in a lawsuit, your policy can help cover legal costs up to the limits of your policy. Liability coverage is financially important because it pays for court fees or court awards up to your policy limits. Thus, the liability portion of your homeowners policy financially protects your assets, which may include your home and any other savings or investments.

Additional Living Expenses

If your home is uninhabitable as a result of a covered peril, your policy pays for the added cost of living away from home. Your policy should pay for hotel bills, restaurant meals, as well as other living expenses you may incur while your home is being rebuilt or repaired. According to the Insurance Information Institute (III), many policies provide coverage for additional living expenses up to 20 percent of your coverage limit.